Based on your input, the calculator creates a summary report that
clearly presents key findings.

If the benefits of refinancing outweigh the costs, refinance. If not,
keep your current mortgage.

A Mortgage Refinancing Case Study

In this section, we present a case study to show how to evaluate the
costs and benefits of mortgage refinancing.

Joe has an existing fixed-rate mortgage. The unpaid balance is $160,000,
the interest rate is 7.75 percent, and there are 20 years remaining
on the loan.
Joe can refinance to get a new fixed-rate mortgage with a lower interest
rate. The details of both loans are described below.

Loan Attributes

Current Loan

New Loan

Loan term

20 years

20 years

Loan amount

$160,000

$160,000

Interest rate

7.75 percent

7.00 percent

Down payment

$0

$0

Points

0

1

Other costs and fees

$0

$1,000

In order to refinance, the lender requires Joe to pay 1 discount point plus
$1,000 in closing costs.

Suppose Joe's mortgage goal is to minimize total mortgage
costs. He wonders which strategy more effectively achieves this goal -
refinancing or keeping his current mortgage. To find out, Joe
uses this site's
mortgage calculator.
His first step is to describe the analysis he want to conduct. Here's how.

Choose "Evaluate refinancing plan" from the Main Goal dropdown box
of the calculator.

In the "Options" section, check the box for
"Show amortization schedule".

Choose "Fixed-Rate Mortgage" as the mortgage type for both loans.

The calculator then prompts Joe for the data it needs. He enters
data from the above description into the calculator, and clicks the
Calculate button. The calculator produces two useful results - a
refinancing analysis (reproduced in the table below) and an amortization
schedule.

Mortgage attributes

Current loan

Refinanced loan

Loan duration

20 years

20 years

Total interest expense

$155,243.45

$137,711.46

Points

$0

$1,600

Other loan costs

$0

$1,000

Total mortgage cost

$315,243.45

$300,311.46

Savings

. . .

$14,931.99

The refinancing analysis shows that Joe can save almost $15,000 by refinancing, over
the 20-year life of the mortgage. However, the amortization schedule reveals
that savings from refinancing do not
begin until the 27th payment period. Therefore, if Joe plans on staying in
his home for more than 27 months, he can save money by refinancing.
Otherwise, he is better off with his current loan.